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NC State Economist
C O L L E G E O F A G R I C U L T U R E & L I F E S C I E N C E S
North Carolina Cooperative Extension Service
Distributed in furtherance of the Acts of Congress of May 8 and June 30, 1914. Employment and program opportunities are offered to all people
regardless of race, color, national origin, sex, age, or disability. North Carolina State University, North Carolina A& T State University,
Agricultural and Resource Economics • September/ October 2002
Ada Wossink, Associate Professor and Extension Economist
Nick Kuminoff, Graduate Assistant
Organic Agriculture in North Carolina
Sustainable agriculture, as defined in the
1990 Farm Bill, encompasses productivity,
environmental quality, efficient use of non-renewable
resources, economic viability
and quality of life for workers and society
as a whole. Under this definition, farming
that emphasizes short- run profit but sacri-fices
environmental quality would not be
considered sustainable. Conversely, pursu-ing
environmental quality without ensuring
viability of long- run returns also would be
unsustainable.
The term “ sustainable” includes a
number agricultural practices. Certain
partial approaches target individual envi-ronmental
aspects, such as practices to
reduce nitrogen emission or erosion ( e. g.,
Wossink and Osmond, 2002; Hardy etal.,
2002). At the other end of the spectrum,
there is organic farming, which refrains
from synthetically compounded fertilizers
and pesticides altogether. Organic farming
systems are attracting increasing attention
because they have the potential to provide
benefits in terms of environmental protec-tion,
to improve food quality, and to re-orient
agriculture towards market demand.
This issue of the NC State Econo-mist
provides an overview of organic
agriculture with an emphasis on North
Carolina. We report research results and
describe some of the new policies and
programs that may affect organic agricul-ture
in the near future.
Organic Farming: One of the Fastest
Growing Segments in Agriculture
The major factor distinguishing organic
farming from other approaches to sustainable
agriculture is the existence of standards and
certification procedures primarily for market-ing
purposes. Briefly, organic guidelines have
been developed in an attempt to be as sustain-able
as possible ( using the definition above)
while assuring the consumer that the amount of
pesticide residue on the food product is mini-mized.
During the 1990s, U. S. organic crop
acreage doubled and production of organic
eggs and milk increased even more. Certified
organic cropland grew from 403,000 acres in
1992 to 850,000 in 1997. Over the same
period, total certified organic farmland in-creased
from 935,000 acres to nearly 1.35
million acres, thus making organic farming one
of the fastest growing segments of U. S. agri-culture
during the 1990s ( Greene, 2001). Still,
these figures may be significantly understated
because the data were derived from certifica-tion
records, so that any farmland that was
treated organically but not certified would not
be included in the USDA’s statistics on organic
acreage. North Carolina had 980 acres of
certified organic cropland in 1997, mostly
vegetables, herbs and nursery products.
In December 2000, the USDA published
the final rule implementing national standards
for organically grown commodities. By
October 2002, all farmers with over $ 5,000 in
2 NC State Economist
gross annual organic sales will have to be
certified as abiding by these national organic
farming standards. Accredited state or private
organizations can certify growers for a fee. One
requirement for land to be certified as organic is
that it must have been treated according to
organic guidelines for at least three years prior
to certification.
Economics
The increase in acreage discussed above
suggests that many farmers are finding organic
agriculture to be a profitable venture. It is clear
that there are often significant price premiums
for organic crops. On the other hand, there are
also higher production costs associated with
replacement of higher yielding crops by more
complex rotations, higher labor costs, and
higher machinery costs associated with diversi-fication.
Several recent U. S. studies have
indicated that organic price premiums are key
in giving organic farming systems comparable
or even higher whole- farm profits than conven-tional
chemical- intensive systems. However,
the variation within organic and conventional
farming systems is likely as large as the differ-ences
between the two systems ( see Greene,
2001 and sources mentioned there).
An organic farming system may be
profitable once it has become established, but
concern about the transition process of convert-ing
from conventional agriculture is a key
factor inhibiting the adoption of organic farm-ing.
Conversion to organic farming involves
significant costs and a high degree of innova-tion.
The costs include conversion- related
investments and information gathering ex-penses,
in addition to possible yield reductions
during the period in which biological processes
become established. The biological adaptation
during the first years can lead to a higher weed
pressure and lower yields. At the same time,
the farm manager is still involved in a learning
process and access to premium prices is at least
partially restricted during the statutory three-year
certification period.
A North Carolina Example
Since 2000, NC State University research-ers
at the Center for Environmental Farming
Systems ( CEFS) have been investigating ways to
convert from conventional to organic agriculture
in the region. Established in 1994, the research
center is located on 2,200 acres near Goldsboro.
The station has three major components: an
organic farm, a mixed farm demonstration project,
and a long- term project on the environmental
benefits of no- till conservation. The 80- acre
organic farm at CEFS is the largest research
facility of its kind in the nation.
At CEFS multi- year crop trials are con-ducted
for various crops including soybeans and
sweet potatoes. Each crop is grown under six
different treatments, each of which uses a differ-ent
combination of pesticides and fertilizer. The
treatments range from conventional to organic.
Yields and input prices are recorded so that
potential profits can be compared across treat-ments.
We selected soybeans as an example.
Preliminary economic results for organic soy-beans
in 2000 were found to be in line with
results from comparable studies for other states
and crops. Organic yields were the lowest of the
six treatments. Production costs for organic
soybeans fell in the middle of the six treatments:
although the organic treatments had lower pesti-cide
costs, they also had higher cultivation and
tillage costs. Overall, the organic treatment was
the least profitable of the six treatments when its
price was calculated as the county average sup-port
price – that is, with no organic price pre-mium.
However, with a price premium of 27% or
more, organic soybeans would become the most
profitable treatment. Anecdotal evidence suggests
that actual price premiums are much higher than
27%. For example, in 1999, 2000 and 2001
growers in Iowa sold organic soybeans for $ 15,
$ 13 and $ 14 per bushel, respectively, to the local
organic elevator ( Delate et al., 2002). In addition,
these organic soybean prices were for the hybrid
September/ October 2002 3
variety most suitable for the local growing
conditions and in tofu production. By way of
comparison, the average price received by
growers of conventional soybeans during this
period was $ 5.20 per bushel.
The CEFS test plots are designated to
remain in the same treatment across the multiple-year
study. As more data become available, it
will be possible to analyze the difference in
organic and conventional crop rotations, rather
than just individual crops. It has been suggested
that the organic treatment might exhibit long-term
benefits as more nutrients are returned to
the soil, possibly reducing future fertilization
costs.
2002 Farm Bill and Organic Farming
Federal and state governments have
responded to the growth in organic farming by
stepping into organic markets as regulators and
subsidizers. By doing so, they have influenced
profitability. Farmers thinking about entering
organic markets today are faced with a number
of new policies and programs including crop
insurance and conversion subsidies. The 2002
Farm Bill introduces or refines some policies and
programs that address organic growers directly,
and others that address all growers of a particular
crop and may unintentionally change the relative
returns to conventional vs. organic agriculture
for particular crops.
The Farm Bill directly addresses organic
agriculture through increased funding of research
and extension on organic agriculture. Another
provision of the new farm bill that directly
affects growers is a cost- sharing program for
organic certification. Individual growers are
eligible for 75% of the certification cost ( not to
exceed $ 500). Furthermore, the new farm bill
provides funds for “ agricultural management
assistance” to producers in Connecticut, Dela-ware,
Maryland, Massachusetts, Maine, Nevada,
New Hampshire, New Jersey, New York, Penn-sylvania,
Rhode Island, Utah, Vermont, West
Virginia, and Wyoming. The financial assistance
can be used for various activities, including conver-sion
or expansion to organic agriculture. An indi-vidual
producer can receive up to $ 50,000 of assis-tance.
Finally, the new farm bill makes growers who
only grow certified organic products exempt from
payment of an assessment under commodity pro-gram
laws.
The 2002 Farm Bill may also have indirect,
unintentional effects on organic growers of crops
eligible for counter- cyclical payments. These
include wheat, corn, grain sorghum, barley, upland
cotton, rice, other oilseeds, and soybeans. For
soybeans, the national average target price is raised
from $ 5.20 to $ 5.80. To see the potential effect of
the higher target price, we can apply the new target
price to the North Carolina example described
above. A target price of $ 5.80 raises the premium
necessary to make organic the most profitable
treatment from 27% to 37%.
Risk Management
Since March 15, 2001, organic farmers have
been able to get many of the same crop insurance
policies as conventional farmers. Insurance premi-ums
for organic crops, however, are determined by
multiplying the insurance premium for a conven-tionally
grown crop by a premium factor. The same
insurance policies are also available for crops that
are in transition to organic, although for both transi-tion
and organic crops, certification is required to
obtain insurance. During 2001 organic growers
purchased federal crop insurance on 13,800 acres,
about 2% of all organic cropland.
Conversion Subsidies
U. S. federal and state governments have
provided various subsidies designed to ease the
transition from conventional to organic farming.
One example is the USDA’s cost- sharing program
for certification and the Agricultural Management
Assistance Program mentioned above. Some states
also offer support for organic conversion. Iowa, for
example, uses the USDA Environmental Quality
Indicators Program ( EQIP) to offer organic farmers
$ 50/ acre up to a maximum of 40 acres to try organic
NC State Economist
North Carolina Cooperative Extension Service
North Carolina State University
Agricultural and Resource Economics
Box 8109
Raleigh, North Carolina 27695- 8109
4
NON- PROFIT ORG.
U. S. POSTAGE
PAID
RALEIGH, NC
PERMIT # 2353
N. C. State Economist
Published bi- monthly by the Department of
Agriculture and Resource Economics and the
Cooperative Extension Service. Address
correspondence to:
The Editor, N. C. State Economist
Box 8109, N. C. State University
Raleigh, NC 27695- 8109
The N. C. State Economist is now on- line at:
http:// www. ag- econ. ncsu. edu/ extension/
economist. htm
production for a 3- year period. Organic growers
in North Carolina are eligible for the certification
cost- sharing but are not currently eligible for any
direct conversion payments.
Conclusion
Strong market signals for organically
produced agricultural commodities make it likely
that organic farming will remain a fast growing
segment of agriculture. The various policies and
programs contained in the 2002 Farm Bill com-bine
incentives and disincentives for organic
growers. Current multidisciplinary research at the
Center for Environmental Farming Systems is
being directed towards developing cost effective
options for the transition from conventional to
organic agriculture, based on an improved under-standing
of biophysical and economic factors.
References
Greene, C. R. ( 2001) U. S. Organic Farming
Emerges in the 1990s: Adoption of Certified
Systems, U. S. Department of Agriculture,
Economic Research Service, Resource Eco-nomics
Division, Agriculture Information
Bulletin No. 770. Also at www. ers. usda. gov/
publications/ aib770/ aib770. pdf
Hardy, David H., Deanna L. Osmond and Ada
Wossink ( 2002), The Economics of Fertilizer
Management, Factsheet North Carolina
Cooperative E x tension Service ( in press)
Delate, Kathleen, Michael Duffy, Craig Chase,
Ann Holste, Heather Friedrich and Noreen
Wantate ( 2002) Long- term Agroecological
Research ( LTAR) in Iowa: An Economic
Comparison of Organic and Conventional
Grain Crops, Journal paper 19802 of the
Iowa Agricultural and Home Economics
Experiment Station, Ames, IO. Also at
extension. agron. iastate. edu/ organicag/
researchreports/ orgeconomics. pdf
Wossink, G. A. A. and D. L. Osmond ( 2002) Cost
Analysis of Mandated Agricultural Best
Management Practices to Control Nitrogen
Losses in the Neuse River Basin, North
Carolina, Journal of Soil and Water Conser-vation
57 ( 4): 213- 220.

NC State Economist
C O L L E G E O F A G R I C U L T U R E & L I F E S C I E N C E S
North Carolina Cooperative Extension Service
Distributed in furtherance of the Acts of Congress of May 8 and June 30, 1914. Employment and program opportunities are offered to all people
regardless of race, color, national origin, sex, age, or disability. North Carolina State University, North Carolina A& T State University,
Agricultural and Resource Economics • September/ October 2002
Ada Wossink, Associate Professor and Extension Economist
Nick Kuminoff, Graduate Assistant
Organic Agriculture in North Carolina
Sustainable agriculture, as defined in the
1990 Farm Bill, encompasses productivity,
environmental quality, efficient use of non-renewable
resources, economic viability
and quality of life for workers and society
as a whole. Under this definition, farming
that emphasizes short- run profit but sacri-fices
environmental quality would not be
considered sustainable. Conversely, pursu-ing
environmental quality without ensuring
viability of long- run returns also would be
unsustainable.
The term “ sustainable” includes a
number agricultural practices. Certain
partial approaches target individual envi-ronmental
aspects, such as practices to
reduce nitrogen emission or erosion ( e. g.,
Wossink and Osmond, 2002; Hardy etal.,
2002). At the other end of the spectrum,
there is organic farming, which refrains
from synthetically compounded fertilizers
and pesticides altogether. Organic farming
systems are attracting increasing attention
because they have the potential to provide
benefits in terms of environmental protec-tion,
to improve food quality, and to re-orient
agriculture towards market demand.
This issue of the NC State Econo-mist
provides an overview of organic
agriculture with an emphasis on North
Carolina. We report research results and
describe some of the new policies and
programs that may affect organic agricul-ture
in the near future.
Organic Farming: One of the Fastest
Growing Segments in Agriculture
The major factor distinguishing organic
farming from other approaches to sustainable
agriculture is the existence of standards and
certification procedures primarily for market-ing
purposes. Briefly, organic guidelines have
been developed in an attempt to be as sustain-able
as possible ( using the definition above)
while assuring the consumer that the amount of
pesticide residue on the food product is mini-mized.
During the 1990s, U. S. organic crop
acreage doubled and production of organic
eggs and milk increased even more. Certified
organic cropland grew from 403,000 acres in
1992 to 850,000 in 1997. Over the same
period, total certified organic farmland in-creased
from 935,000 acres to nearly 1.35
million acres, thus making organic farming one
of the fastest growing segments of U. S. agri-culture
during the 1990s ( Greene, 2001). Still,
these figures may be significantly understated
because the data were derived from certifica-tion
records, so that any farmland that was
treated organically but not certified would not
be included in the USDA’s statistics on organic
acreage. North Carolina had 980 acres of
certified organic cropland in 1997, mostly
vegetables, herbs and nursery products.
In December 2000, the USDA published
the final rule implementing national standards
for organically grown commodities. By
October 2002, all farmers with over $ 5,000 in
2 NC State Economist
gross annual organic sales will have to be
certified as abiding by these national organic
farming standards. Accredited state or private
organizations can certify growers for a fee. One
requirement for land to be certified as organic is
that it must have been treated according to
organic guidelines for at least three years prior
to certification.
Economics
The increase in acreage discussed above
suggests that many farmers are finding organic
agriculture to be a profitable venture. It is clear
that there are often significant price premiums
for organic crops. On the other hand, there are
also higher production costs associated with
replacement of higher yielding crops by more
complex rotations, higher labor costs, and
higher machinery costs associated with diversi-fication.
Several recent U. S. studies have
indicated that organic price premiums are key
in giving organic farming systems comparable
or even higher whole- farm profits than conven-tional
chemical- intensive systems. However,
the variation within organic and conventional
farming systems is likely as large as the differ-ences
between the two systems ( see Greene,
2001 and sources mentioned there).
An organic farming system may be
profitable once it has become established, but
concern about the transition process of convert-ing
from conventional agriculture is a key
factor inhibiting the adoption of organic farm-ing.
Conversion to organic farming involves
significant costs and a high degree of innova-tion.
The costs include conversion- related
investments and information gathering ex-penses,
in addition to possible yield reductions
during the period in which biological processes
become established. The biological adaptation
during the first years can lead to a higher weed
pressure and lower yields. At the same time,
the farm manager is still involved in a learning
process and access to premium prices is at least
partially restricted during the statutory three-year
certification period.
A North Carolina Example
Since 2000, NC State University research-ers
at the Center for Environmental Farming
Systems ( CEFS) have been investigating ways to
convert from conventional to organic agriculture
in the region. Established in 1994, the research
center is located on 2,200 acres near Goldsboro.
The station has three major components: an
organic farm, a mixed farm demonstration project,
and a long- term project on the environmental
benefits of no- till conservation. The 80- acre
organic farm at CEFS is the largest research
facility of its kind in the nation.
At CEFS multi- year crop trials are con-ducted
for various crops including soybeans and
sweet potatoes. Each crop is grown under six
different treatments, each of which uses a differ-ent
combination of pesticides and fertilizer. The
treatments range from conventional to organic.
Yields and input prices are recorded so that
potential profits can be compared across treat-ments.
We selected soybeans as an example.
Preliminary economic results for organic soy-beans
in 2000 were found to be in line with
results from comparable studies for other states
and crops. Organic yields were the lowest of the
six treatments. Production costs for organic
soybeans fell in the middle of the six treatments:
although the organic treatments had lower pesti-cide
costs, they also had higher cultivation and
tillage costs. Overall, the organic treatment was
the least profitable of the six treatments when its
price was calculated as the county average sup-port
price – that is, with no organic price pre-mium.
However, with a price premium of 27% or
more, organic soybeans would become the most
profitable treatment. Anecdotal evidence suggests
that actual price premiums are much higher than
27%. For example, in 1999, 2000 and 2001
growers in Iowa sold organic soybeans for $ 15,
$ 13 and $ 14 per bushel, respectively, to the local
organic elevator ( Delate et al., 2002). In addition,
these organic soybean prices were for the hybrid
September/ October 2002 3
variety most suitable for the local growing
conditions and in tofu production. By way of
comparison, the average price received by
growers of conventional soybeans during this
period was $ 5.20 per bushel.
The CEFS test plots are designated to
remain in the same treatment across the multiple-year
study. As more data become available, it
will be possible to analyze the difference in
organic and conventional crop rotations, rather
than just individual crops. It has been suggested
that the organic treatment might exhibit long-term
benefits as more nutrients are returned to
the soil, possibly reducing future fertilization
costs.
2002 Farm Bill and Organic Farming
Federal and state governments have
responded to the growth in organic farming by
stepping into organic markets as regulators and
subsidizers. By doing so, they have influenced
profitability. Farmers thinking about entering
organic markets today are faced with a number
of new policies and programs including crop
insurance and conversion subsidies. The 2002
Farm Bill introduces or refines some policies and
programs that address organic growers directly,
and others that address all growers of a particular
crop and may unintentionally change the relative
returns to conventional vs. organic agriculture
for particular crops.
The Farm Bill directly addresses organic
agriculture through increased funding of research
and extension on organic agriculture. Another
provision of the new farm bill that directly
affects growers is a cost- sharing program for
organic certification. Individual growers are
eligible for 75% of the certification cost ( not to
exceed $ 500). Furthermore, the new farm bill
provides funds for “ agricultural management
assistance” to producers in Connecticut, Dela-ware,
Maryland, Massachusetts, Maine, Nevada,
New Hampshire, New Jersey, New York, Penn-sylvania,
Rhode Island, Utah, Vermont, West
Virginia, and Wyoming. The financial assistance
can be used for various activities, including conver-sion
or expansion to organic agriculture. An indi-vidual
producer can receive up to $ 50,000 of assis-tance.
Finally, the new farm bill makes growers who
only grow certified organic products exempt from
payment of an assessment under commodity pro-gram
laws.
The 2002 Farm Bill may also have indirect,
unintentional effects on organic growers of crops
eligible for counter- cyclical payments. These
include wheat, corn, grain sorghum, barley, upland
cotton, rice, other oilseeds, and soybeans. For
soybeans, the national average target price is raised
from $ 5.20 to $ 5.80. To see the potential effect of
the higher target price, we can apply the new target
price to the North Carolina example described
above. A target price of $ 5.80 raises the premium
necessary to make organic the most profitable
treatment from 27% to 37%.
Risk Management
Since March 15, 2001, organic farmers have
been able to get many of the same crop insurance
policies as conventional farmers. Insurance premi-ums
for organic crops, however, are determined by
multiplying the insurance premium for a conven-tionally
grown crop by a premium factor. The same
insurance policies are also available for crops that
are in transition to organic, although for both transi-tion
and organic crops, certification is required to
obtain insurance. During 2001 organic growers
purchased federal crop insurance on 13,800 acres,
about 2% of all organic cropland.
Conversion Subsidies
U. S. federal and state governments have
provided various subsidies designed to ease the
transition from conventional to organic farming.
One example is the USDA’s cost- sharing program
for certification and the Agricultural Management
Assistance Program mentioned above. Some states
also offer support for organic conversion. Iowa, for
example, uses the USDA Environmental Quality
Indicators Program ( EQIP) to offer organic farmers
$ 50/ acre up to a maximum of 40 acres to try organic
NC State Economist
North Carolina Cooperative Extension Service
North Carolina State University
Agricultural and Resource Economics
Box 8109
Raleigh, North Carolina 27695- 8109
4
NON- PROFIT ORG.
U. S. POSTAGE
PAID
RALEIGH, NC
PERMIT # 2353
N. C. State Economist
Published bi- monthly by the Department of
Agriculture and Resource Economics and the
Cooperative Extension Service. Address
correspondence to:
The Editor, N. C. State Economist
Box 8109, N. C. State University
Raleigh, NC 27695- 8109
The N. C. State Economist is now on- line at:
http:// www. ag- econ. ncsu. edu/ extension/
economist. htm
production for a 3- year period. Organic growers
in North Carolina are eligible for the certification
cost- sharing but are not currently eligible for any
direct conversion payments.
Conclusion
Strong market signals for organically
produced agricultural commodities make it likely
that organic farming will remain a fast growing
segment of agriculture. The various policies and
programs contained in the 2002 Farm Bill com-bine
incentives and disincentives for organic
growers. Current multidisciplinary research at the
Center for Environmental Farming Systems is
being directed towards developing cost effective
options for the transition from conventional to
organic agriculture, based on an improved under-standing
of biophysical and economic factors.
References
Greene, C. R. ( 2001) U. S. Organic Farming
Emerges in the 1990s: Adoption of Certified
Systems, U. S. Department of Agriculture,
Economic Research Service, Resource Eco-nomics
Division, Agriculture Information
Bulletin No. 770. Also at www. ers. usda. gov/
publications/ aib770/ aib770. pdf
Hardy, David H., Deanna L. Osmond and Ada
Wossink ( 2002), The Economics of Fertilizer
Management, Factsheet North Carolina
Cooperative E x tension Service ( in press)
Delate, Kathleen, Michael Duffy, Craig Chase,
Ann Holste, Heather Friedrich and Noreen
Wantate ( 2002) Long- term Agroecological
Research ( LTAR) in Iowa: An Economic
Comparison of Organic and Conventional
Grain Crops, Journal paper 19802 of the
Iowa Agricultural and Home Economics
Experiment Station, Ames, IO. Also at
extension. agron. iastate. edu/ organicag/
researchreports/ orgeconomics. pdf
Wossink, G. A. A. and D. L. Osmond ( 2002) Cost
Analysis of Mandated Agricultural Best
Management Practices to Control Nitrogen
Losses in the Neuse River Basin, North
Carolina, Journal of Soil and Water Conser-vation
57 ( 4): 213- 220.